April 20, 2015

The Mistake Of Regarding Homes As An Asset Class

The Marin Independent Journal reports from California. “Marin single-family home prices jumped 3.4 percent in March as the county continues to deal with a supply and demand problem that’s causing bidding wars among buyers. The median price of a Marin home in March was $987,000, compared with $955,000 in March 2014, and 218 homes sold in the county compared with 219 in the same month the year before, according to CoreLogic. People interested in buying homes are being advised by Bob Ravasio, a Coldwell Banker real estate agent, to make sure they know how much they’re comfortable spending on a home. ‘I always tell my clients to chose how much money to spend based on if you get it you’re not going to wake up the next day and say ‘Oh god, what have I done.’ On the other hand, you don’t want to say ‘Oh man, I should have put in more money,’ Ravasio said.”

The World Herald in Nebraska. “Within three weeks of deciding to stop renting, Dayna Miyashiro and fiance Jeff Allgood signed a contract to buy a midtown house. In fact, they pitched their higher-than-asking-price bid right after laying eyes on 4307 Marcy St. The offer on the 89-year-old home was accepted before sundown the next day. ‘We had to be very aggressive,’ said Allgood, a securities specialist. ‘We didn’t want to miss out.’”

“The couple — he’s 25 and she’s 28 — is part of a wave that many real estate experts believe is resurging locally: the first-time homebuyer. With his family nearby, and UNMC growing, the couple consider the gable-roofed, wood-floored home a wise investment even if the budding internal medicine doc is stationed elsewhere after her residency. ‘We’ll always have a connection to Omaha,’ she said. ‘Buying a home, I know, will be a great investment.’”

The Coeur d’Alene Press in Idaho. “The National Association of Realtors and the Department of Housing and Urban development agree, the way credit scores are calculated needs updating. Credit scoring companies have already taken steps to broaden the criteria to include payments for utilities and rents. By looking at other measurements like on-time payments to a property manager, phone company or utilities under the proposed changes these folks could build a good score through the agencies adopting the proposed new standards. Recent research by Experian finds that the inclusion of utility payments in a credit-scoring model could reduce the number of borrowers considered to be subprime by half.”

“While these things could help the housing market, we are seeing another challenge locally. With 54 percent of our residential sales selling for less than $200,000, a search of the Coeur d’Alene market revealed only 126 homes available below that price. Of that number, nearly half showed accepted offers already in place, waiting for financing or inspections before moving to closing and completing the transfer. This makes it pretty slim pickings for buyers trying to find affordable houses.”

Chicago Now in Illinois. “I did a double take yesterday when RealtyTrac released their March Foreclosure Market Report, including data for Chicago. Since peaking again in August 2012 Chicago foreclosure activity has generally been on a downward trend and actually hit a new low in February. Then the March data comes along and it’s roughly triple what it was in February. In fact, it hasn’t been this high since January 2013. Their on-the-ground intelligence indicates that the spike might have been the result of some kind of backlog that just cleared and released a flurry of activity.”

“Note that the surge is in the two latter stages of foreclosure - bank repossessions and scheduled auctions. Defaults did not increase so the pipeline is not getting fatter and will probably end up clearing faster now. So if this data is correct then we can look forward to a surge in distressed properties hitting the market and a further reduction in the shadow inventory.”

“One of the more interesting points RealtyTrac VP Daren Blomquist made was that back in early 2013 Illinois passed SB 16, otherwise known as the Fast Track Foreclosure Legislation. The legislation did anything but provide a fast track foreclosure process. In fact, with all the additional requirements, not only did it slow down the process but it totally discourages foreclosures of low end homes where the cost of a foreclosure now exceeds the benefit for the bank. So we are ending up with all these low end homes where the owner is in default on their mortgage, the bank is entitled to all the proceeds of any sale, but the bank doesn’t foreclose on the home. These homes become zombie foreclosures and it’s a growing problem for cities like Chicago.”

The Houston Chronicle in Texas. “A new reality is settling in on the local real estate market as Houston confronts its first serious economic hit in years. After years of white-hot growth, some houses are sitting on the market a little longer and builders have started offering perks to lure prospective buyers. One Tuesday morning last fall, Sheldon Bloch checked his computer for new home listings and saw a four-bedroom that looked promising. He and his wife, Pat Deeves, knew from experience they had to act fast.”

“The dogged house-hunters drove past and phoned their real estate agent. That afternoon, Bloch called their mortgage broker and Deeves penned a letter to the sellers. They offered thousands more than the asking price. After almost two years of wrestling Houston’s real estate market at its most challenging, Bloch and Deeves had finally won - and now it was their turn to call the shots. The couple listed their old house in January, then waited. Six weeks later, they dropped their price by $15,000 - and waited another week before making a sale.”

“‘It was the flip side of the fall experience,’ Deeves said.”

From Barron’s. “Rising sales in Dallas and Denver, for example, mean houses now cost more than they did back in 2006; and other markets, such as Boston, Charlotte, Portland, and San Francisco, are very close to their peaks, according to Standard & Poor’s/Case-Shiller. Just as several measures of U.S. economic growth appear poised to accelerate, the three-year residential real estate market recovery is showing signs of slowing.”

“Housing starts, as reported by the Commerce Department, have been in a deep funk ever since the U.S. housing bust and Great Recession hit with such ferocity in 2007. They can’t seem to get much over the hump of one million a year, even though population growth and immigration alone would seemingly dictate construction of at least 1.4 million homes annually. ‘There’s no question the housing recovery is beginning to falter some,’ observes David Blitzer, chairman of the keeper of the S&P/Case-Shiller Home Price family of indexes. ‘Anytime in the past, when housing starts came in at the current annual pace of one million new homes, the economy was in recession. One wonders whether these days something has changed in Americans’ attitude towards homeownership.’”

“Robert Shiller, co-creator of the Case Shiller home price indexes, said, many buyers during the boom years, aided and abetted by real estate industry cheerleaders, made the mistake of regarding homes as an asset class, like stocks or bonds. This is clearly not the case. Homes, in fact, are a consumption item that depreciates, requiring much upkeep spending to hold value. In fact, about the best one can expect in home appreciation over the long term is to match inflation. That’s what a study of U.S. home prices from 1890 to 1990 showed. Actually, Shiller found that prices outpaced inflation by a trivial 10 basis points (a tenth of a percentage point) annually.”

“Shiller detects reluctance on the part of many to shoulder the long-term commitment that a home requires. ‘People are clearly beset by insecurity over their careers, both as a result of globalization and job displacement by computers,’ he observes. ‘We live in a world of first-mover advantage and a winner-take-all economy that makes people fearful.’”

Bits Bucket for April 20, 2015

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